What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-06-03 compared with 2021-12-02 · 98 added, 211 removed, 328 unchanged (49% of the section changed)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K.

As discussed in the section titled “Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q and Part I, Item 1A in our Annual Report on Form 10-K.

In addition to historical financial information, the following discussion contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q and Part I, Item 1A in our Annual Report on Form 10-K.

Our fiscal year ends January 31.

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The Okta Identity Cloud is powered by our category-defining platform that enables our customers to securely connect the right people to the right technologies and services at the right time.

Every day, thousands of organizations and millions of people use Okta to securely access a wide range of cloud, mobile and web applications, on-premises servers, application program interfaces (“APIs”), IT infrastructure providers and services from a multitude of devices.

Every day, thousands of organizations and millions of people use Okta to securely access a wide range of cloud, mobile and web applications, on-premises servers, application programming interfaces (“APIs”), IT infrastructure providers and services from a multitude of devices.

Developers leverage our platform to securely and efficiently embed identity into the software they build, allowing them to focus on their core mission.

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Our approach to identity allows our customers to simplify and efficiently scale their security infrastructures across internal IT systems and external customer facing applications.

As of October 31, 2021, more than 14,000 customers across nearly every industry used the Okta Identity Cloud to secure and manage identities around the world.

As of April 30, 2022, more than 15,800 customers across nearly every industry used the Okta Identity Cloud to secure and manage identities around the world.

Our customers consist of leading global organizations ranging from the largest enterprises, to small and medium-sized businesses, universities, non-profits and government agencies.

We also partner with leading application, IT infrastructure and security vendors through our Okta Integration Network.

As of October 31, 2021, we had over 7,000 integrations with these cloud, mobile and web applications and IT infrastructure and security vendors.

As of April 30, 2022, we had over 7,000 integrations with these cloud, mobile and web applications and IT infrastructure and security vendors.

We employ a Software-as-a-Service (“SaaS”) business model, and generate revenue primarily by selling multi-year subscriptions to our cloud-based offerings.

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We typically invoice customers in advance in annual installments for subscriptions to our platform.

Impact of Coronavirus (COVID-19) Pandemic

Impact of COVID-19 Pandemic

The extent of the impact of COVID-19 on our future operational and financial performance remains uncertain and will depend on certain developments, including the duration and spread of COVID-19 and variants of concern, related public health measures, including vaccine mandates, the manufacture, distribution, efficacy and public acceptance of treatments and vaccines, and their impact on the macroeconomy, our current and prospective customers, employees and vendors.

None of these impacts can be predicted with certainty.

Our revenue is relatively predictable as a result of our subscription-based business model, which constituted approximately 96% of total revenue for the nine months ended October 31, 2021.

Our revenue is relatively predictable as a result of our subscription-based business model, which constituted approximately 96% of total revenue for the three months ended April 30, 2022.

Future growth may be impacted by longer sales cycles, which we have experienced, which in turn, could result in delays in deals closing, creating near-term headwinds for cash flow, remaining performance obligations (“RPO”) and billings growth as well as potential future impacts on revenue growth and other key metrics on a trailing basis.

While we see risks associated with more highly impacted companies and industries, we are also seeing new interest from other organizations, driven by rapidly changing work and business environments.

As workforces have transitioned to fully remote and

hybrid work models, Zero Trust has become an increasingly important security model and identity an increasingly critical service.

As workforces have transitioned to fully remote and hybrid work

models, Zero Trust has become an increasingly important security model and identity an increasingly critical service.

We believe we will be able to continue to deliver our cloud-based platform and support to our customers, without compromising our employees’ safety.

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We further experienced cost savings driven by reductions in employee-related expenses as our sales and marketing activities shifted primarily to an online-only sales format and our employees shifted to work-from-home procedures.

In fiscal 2022, as the administration of vaccines has increased, we have reopened our offices to partial capacity, allowing our employees to voluntarily return.

We continue to evaluate our strategy to return to in-person sales formats and experiences for future annual user conferences, and we expect our future costs to increase.

In fiscal 2022, as the administration of vaccines increased, we reopened our offices to partial capacity, allowing our employees to voluntarily return and resumed some in-person sales and marketing activities.

In fiscal 2023, we are shifting to hybrid in-person and virtual sales formats and experiences for future annual user conferences, and we expect our future costs to increase.

See Risk Factors for further discussion of the potential impact of COVID-19 and its related public health measures on our business.

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On May 3, 2021, we completed the acquisition of Auth0.

The acquisition date fair value, net of acquired cash and subject to final adjustments, was approximately $5,671.0 million, including approximately 19.2 million shares of our Class A common stock valued at $5,175.6 million, $257.0 million in cash, and assumed equity awards with an initial fair market value of $238.4 million.

In addition, we issued unvested restricted stock valued at $332.1 million and assumed unvested equity and restricted cash awards valued at $430.2 million, which are subject to future vesting and will be recorded as expense over the period the services are provided.

Approximately 5% of the total consideration was held back by us to secure the indemnification obligations of the Auth0 securityholders arising during the twelve months following the closing.

The estimated transaction value of approximately $6,500.0 million, as previously announced, includes restricted stock and assumed equity and restricted cash awards subject to future vesting and was based on the fixed conversion stock price specified in the Merger Agreement.

Further, the estimated transaction value excludes the impact of cash acquired and other customary closing purchase price adjustments.

See Note 3 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

The following discussion and analysis of our results of operations and our liquidity and capital resources includes the results of operations for Auth0 for the period from May 3, 2021 through October 31, 2021.

For additional information, including pro forma results of operations for the nine months ended October 31, 2021 and 2020 calculated as if Auth0 had been acquired as of February 1, 2020, see Note 3 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

The acquisition date fair value, net of acquired cash, was approximately $5,671.0 million, including shares of our Class A common stock, cash, and assumed equity awards.

In addition, we issued unvested restricted stock and assumed unvested equity and restricted cash awards, which are subject to future vesting and will be recorded as expense over the period the services are provided.

A portion of the total consideration was held back by us to secure the indemnification obligations of the Auth0 securityholders arising during the twelve months following the closing.

The cash consideration held back was paid in full during the three months ended April 30, 2022.

See Note 3 to our audited consolidated financial statements included in our Form 10-K filed with the SEC on March 7, 2022.

Components of Results of Operations

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Overhead Allocation and Employee Compensation Costs

We allocate shared costs, such as facilities costs (including rent, utilities and depreciation on assets shared by all departments), certain information technology costs and recruiting costs to all departments based on

As such, allocated shared costs are reflected in each cost of revenue and operating expense category.

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Cost of subscription primarily consists of expenses related to hosting our services and providing support.

These expenses include employee-related costs associated with our cloud-based infrastructure and our customer support organization, third-party hosting fees, software and maintenance costs, outside services associated with the delivery of our subscription services, amortization expense associated with capitalized internal-use software and acquired developed technology and allocated overhead.

These expenses include employee-related costs associated with our cloud-based infrastructure

and our customer support organization, third-party hosting fees, software and maintenance costs, outside services associated with the delivery of our subscription services, amortization expense associated with capitalized internal-use software and acquired developed technology and allocated overhead.

We intend to continue to invest additional resources in our platform infrastructure and our platform support organizations.

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Interest and Other, Net

Interest and other, net consists of interest expense, which primarily includes amortization of debt discount and issuance costs and contractual interest expense for the Notes, interest income from our investment holdings, gains and losses from our strategic investments and loss on early extinguishment and conversion of debt.

Interest and other, net consists of interest expense, which primarily includes amortization of debt discount and loss on early extinguishment and conversion of debt (in comparative periods prior to the adoption of ASU 2020-06), amortization of debt issuance costs, contractual interest expense for the Notes, interest income from our investment holdings, and gains and losses from our strategic investments.

Provision for (Benefit from) Income Taxes

Our provision for (benefit from) income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions, and is determined for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items occurring in the quarter.

Our provision for (benefit from) income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions where we operate, and is determined for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items occurring in the quarter.

The primary difference between our effective tax rate and the federal statutory rate relates to the net operating losses in jurisdictions with a valuation allowance against related deferred tax assets.

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

(in thousands)

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Interest income and other, net 1,704 4,355

Loss on early extinguishment and conversion of debt — (89) (179) (2,263)

Loss on conversion of debt — (136)

Interest and other, net (1,164) (18,541)

Loss before provision for (benefit from) income taxes (220,644) (72,555) (614,010) (191,152)

Provision for (benefit from) income taxes 667 209 (6,785) (626)

Loss before provision for income taxes (240,853) (109,222)

Provision for income taxes 1,860 10

Net loss $ (242,713) $ (109,232)

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

(in thousands)

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Subscription 96 % 96 %

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Interest and other, net — (8)

Loss before provision for (benefit from) income taxes (63) (33) (67) (32)

Provision for (benefit from) income taxes — — (1) —

Loss before provision for income taxes (58) (44)

Provision for income taxes — —

Net loss (58) % (44) %

Comparison of the Three Months Ended October 31, 2021 and 2020

Comparison of the Three Months Ended April 30, 2022 and 2021

Three Months Ended

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Total 100 % 100 %

Subscription revenue increased by $130.0 million, or 63%, for the three months ended October 31, 2021 compared to the three months ended October 31, 2020.

The increase was primarily due to the addition of new customers and an increase in users and sales of additional products to existing customers, as well as the inclusion of Auth0 revenue in the current period.

Professional services and other revenue increased by $3.3 million, or 31%, for the three months ended October 31, 2021 compared to the three months ended October 31, 2020.

Subscription revenue increased by $157.9 million, or 66%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021.

The increase in subscription revenue was primarily due to the addition of new customers and an increase in users and sales of additional products to existing customers, as well as the inclusion of Auth0 revenue in the current period.

Professional services and other revenue increased by $6.1 million, or 55%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021.

The increase in professional services revenue was primarily related to an increase in implementation and other services associated with growth in the number of new customers purchasing our subscription services, as well as the inclusion of Auth0 revenue in the current period.

The business combination with Auth0 contributed approximately $46.0 million in total revenue for the three months ended October 31, 2021.

Cost of Revenue, Gross Profit and Gross Margin

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Total gross margin 68 % 74 %

Cost of subscription revenue increased by $46.3 million, or 103%, for the three months ended October 31, 2021 compared to the three months ended October 31, 2020, primarily due to an increase of $20.8 million in employee compensation costs related to higher headcount to support the growth in our subscription services, including the Auth0 acquisition, an increase in amortization of acquired developed technology of $9.7 million primarily in connection with the Auth0 acquisition, an increase of $7.8 million in third-party hosting costs as we expanded capacity to support our growth and an increase of $3.7 million in software license costs.

Our gross margin for subscription revenue decreased to 73% for the three months ended October 31, 2021 from 78% during the three months ended October 31, 2020 primarily due to the inclusion of Auth0 revenue, which carries a higher relative cost and lower gross margin as well as an increase in amortization of acquired developed technology primarily in connection with the Auth0 acquisition.

Cost of subscription revenue increased by $58.5 million, or 112%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021, primarily due to an increase of $28.6 million in employee compensation costs related to higher headcount to support the growth in our subscription services, including the Auth0 acquisition, an increase of $10.1 million in third-party hosting costs as we expanded capacity to support our growth, an increase in amortization of acquired developed technology of $9.7 million primarily in connection with the Auth0 acquisition and an increase of $4.8 million in software license costs.

Our gross margin for subscription revenue decreased to 72% for the three months ended April 30, 2022 from 78% during the three months ended April 30, 2021 primarily due to the inclusion of Auth0 revenue, which carries a higher relative cost and lower gross margin, as well as an increase in amortization of acquired developed technology primarily in connection with the Auth0 acquisition.

While our gross margin for subscription revenue may fluctuate in the near-term as we invest in our growth, we expect our subscription revenue gross margin to improve over the long-term as we achieve additional economies of scale.

Cost of professional services and other revenue increased by $6.5 million, or 53%, for the three months ended October 31, 2021, compared to the three months ended October 31, 2020, primarily due to an increase of $4.8 million in employee compensation costs related to increased headcount, including the Auth0 acquisition.

Our gross margin for professional services and other revenue decreased to (33)% for the three months ended October 31, 2021 from (14)% during the three months ended October 31, 2020 and includes Auth0.

Cost of professional services and other revenue increased by $6.6 million, or 48%, for the three months ended April 30, 2022, compared to the three months ended April 30, 2021, primarily due to an increase of $4.5 million in employee compensation costs related to increased headcount, including the Auth0 acquisition.

Our gross margin for professional services and other revenue improved to (19)% for the three months ended April 30, 2022 from (25)% during the three months ended April 30, 2021 and includes Auth0.

Operating Expenses

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Percentage of revenue 39 % 28 %

Research and development expenses increased $72.4 million, or 124%, for the three months ended October 31, 2021 compared to the three months ended October 31, 2020.

The increase was primarily due to an

increase of $65.9 million in employee compensation costs due to higher headcount and the inclusion of Auth0.

Research and development expenses increased $92.8 million, or 135%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021.

The increase was primarily due to an increase of $84.5 million in employee compensation costs due to higher headcount and the inclusion of Auth0.

The increase in employee compensation costs includes $15.8 million in stock-based compensation expense primarily related to the revesting agreements from the Auth0 acquisition.

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Percentage of revenue 61 % 58 %

Sales and marketing expenses increased $94.1 million, or 86%, for the three months ended October 31, 2021 compared to the three months ended October 31, 2020 primarily due to an increase of $60.0 million in employee compensation costs related to higher headcount, including the Auth0 acquisition, an increase in marketing and event costs of $16.3 million primarily due to increases in demand generation programs, advertising, and brand awareness efforts aimed at acquiring new customers, offset by a decrease of $4.8 million due to a cancellation charge related to our annual customer conference incurred in the three months ended October 31, 2020 and an increase in amortization expense of $9.9 million for acquired customer relationships and trade names in connection with the Auth0 acquisition incurred in the three months ended October 31, 2021, but not in the three months ended October 31, 2020.

We expect sales and marketing expenses will increase in absolute dollars and may increase as a percentage of total revenue in future periods as we invest in acquiring new customers for both Okta and Auth0 products.

Sales and marketing expenses increased $106.0 million, or 72%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021 primarily due to an increase of $65.2 million in employee compensation costs related to higher headcount, including the Auth0 acquisition, an increase in amortization expense of $9.9 million for acquired customer relationships and trade names in connection with the Auth0 acquisition incurred in the three months ended April 30, 2022, but not in the three months ended April 30, 2021, an increase in company-wide event costs of $7.1 million primarily due to an in-person sales event which was virtual during the three months ended April 30, 2021, an increase in travel expenses of $5.8 million and an increase in marketing costs of $3.7 million primarily due to increases in demand generation programs, advertising, and brand awareness efforts aimed at acquiring new customers.

We expect sales and marketing expenses will increase in absolute dollars and may increase as a percentage of total revenue in future periods as we invest in acquiring new customers.

General and Administrative Expenses

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Percentage of revenue 26 % 24 %

General and administrative expenses increased $60.7 million, or 136%, for the three months ended October 31, 2021 compared to the three months ended October 31, 2020 primarily due to an increase of $44.0 million in employee compensation costs primarily related to higher headcount to support our continued growth, including the Auth0 acquisition, and an increase of $8.0 million due to acquisition and integration-related costs incurred in the three months ended October 31, 2021, but not in the three months ended October 31, 2020.

General and administrative expenses increased $49.2 million, or 82%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021 primarily due to an increase of $42.1 million in employee compensation costs primarily related to higher headcount to support our continued growth, including the Auth0 acquisition.

The increase in employee compensation costs includes $11.9 million in stock-based compensation expense related to the revesting agreements from our Auth0 acquisition.

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Interest income and other, net 1,704 4,355 (2,651) (61)

Loss on early extinguishment and conversion of debt — (89) 89 (100)

Interest and other, net $ (22,088) $ (20,579) $ (1,509) 7 %

Interest expense increased $0.8 million, or 3%, for the three months ended October 31, 2021 compared to the three months ended October 31, 2020 primarily due to the 2026 Notes.

Interest income and other, net decreased $0.8 million, or (44)%, for the three months ended October 31, 2021 compared to the three months ended October 31, 2020, primarily due to a decrease of $1.8 million in interest income, partially offset by adjustments in the carrying value of our strategic investments.

Comparison of the Nine Months Ended October 31, 2021 and 2020

Nine Months Ended

2021 2020 $ Change % Change

(dollars in thousands)

Subscription $ 879,881 $ 571,213 $ 308,668 54 %

Professional services and other 37,305 29,471 7,834 27

Total revenue $ 917,186 $ 600,684 $ 316,502 53 %

Percentage of revenue:

Subscription 96 % 95 %

Professional services and other 4 5

Total 100 % 100 %

Subscription revenue increased by $308.7 million, or 54%, for the nine months ended October 31, 2021 compared to the nine months ended October 31, 2020.

The increase was primarily due to the addition of new customers as well as an increase in users and sales of additional products to existing customers, as well as the inclusion of Auth0 revenue in the current period.

Professional services and other revenue increased by $7.8 million, or 27%, for the nine months ended October 31, 2021 compared to the nine months ended October 31, 2020.

The business combination with Auth0 contributed approximately $83.6 million in total revenue for the period from May 3, 2021 through October 31, 2021.

Cost of Revenue, Gross Profit and Gross Margin

Nine Months Ended

2021 2020 $ Change % Change

(dollars in thousands)

Cost of revenue:

Subscription $ 227,903 $ 121,420 $ 106,483 88 %

Professional services and other 49,000 35,121 13,879 40

Total cost of revenue $ 276,903 $ 156,541 $ 120,362 77 %

Gross profit $ 640,283 $ 444,143 $ 196,140 44 %

Gross margin:

Subscription 74 % 79 %

Professional services and other (31) (19)

Total gross margin 70 74

Cost of subscription revenue increased by $106.5 million, or 88%, for the nine months ended October 31, 2021 compared to the nine months ended October 31, 2020, primarily due to an increase of $52.7 million in employee compensation costs related to higher headcount to support the growth in our subscription services, including the Auth0 acquisition, an increase in amortization of acquired developed technology of $18.3 million

primarily in connection with the Auth0 acquisition, an increase of $17.5 million in third-party hosting costs as we expanded capacity to support our growth and an increase of $8.3 million in software license costs.

Our gross margin for subscription revenue decreased to 74% from 79% during the nine months ended October 31, 2021 compared to the nine months ended October 31, 2020 primarily due to the inclusion of Auth0 revenue, which carries a higher relative cost and lower gross margin as well as an increase in amortization of acquired developed technology primarily in connection with the Auth0 acquisition.

While our gross margins for subscription revenue may fluctuate in the near-term as we invest in our growth, we expect our subscription revenue gross margin to improve over the long-term as we achieve additional economies of scale.

Cost of professional services and other revenue increased by $13.9 million, or 40%, for the nine months ended October 31, 2021, compared to the nine months ended October 31, 2020, due to an increase of $10.8 million in employee compensation costs related to higher headcount, including the Auth0 acquisition.

Our gross margin for professional services and other revenue decreased to (31)% during the nine months ended October 31, 2021 from (19)% during the nine months ended October 31, 2020 and includes Auth0.

Operating Expenses

Research and Development Expenses

Nine Months Ended

2021 2020 $ Change % Change

(dollars in thousands)

Research and development $ 321,805 $ 160,510 $ 161,295 100 %

Percentage of revenue 35 % 27 %

Research and development expenses increased $161.3 million, or 100%, for the nine months ended October 31, 2021 compared to the nine months ended October 31, 2020.

The increase was primarily due to an increase of $143.5 million in employee compensation costs related to higher headcount, including the Auth0 acquisition and an increase of $6.0 million in research and design expenses.

The increase in employee compensation costs includes $31.4 million in stock-based compensation expense primarily related to the revesting agreements from our Auth0 acquisition.

Sales and Marketing Expenses

Nine Months Ended

2021 2020 $ Change % Change

(dollars in thousands)

Sales and marketing $ 548,749 $ 312,177 $ 236,572 76 %

Percentage of revenue 60 % 52 %

Sales and marketing expenses increased $236.6 million, or 76%, for the nine months ended October 31, 2021, compared to the nine months ended October 31, 2020 primarily due to an increase of $148.8 million in employee compensation costs related to headcount growth, including the Auth0 acquisition, an increase in marketing and event costs of $48.4 million primarily due to increases in demand generation programs, advertising and brand awareness efforts aimed at acquiring new customers and higher production and advertising costs for our virtual format annual customer conference, offset by a decrease of $4.8 million due to a cancellation charge related to our annual customer conference incurred in the nine months ended October 31, 2020, an increase in amortization expense of $19.7 million for acquired customer relationships and trade names in connection with the Auth0 acquisition incurred in the nine months ended October 31, 2021, but not in the nine months ended October 31, 2020, an increase in allocated costs of $11.9 million and an increase in software license costs of $4.0 million.

General and Administrative Expenses

Nine Months Ended

2021 2020 $ Change % Change

(dollars in thousands)

General and administrative $ 322,406 $ 121,019 $ 201,387 166 %

Percentage of revenue 35 % 20 %

General and administrative expenses increased $201.4 million, or 166%, for the nine months ended October 31, 2021 compared to the nine months ended October 31, 2020.

The increase was primarily due to an increase of $133.5 million in employee compensation costs related to higher headcount to support our continued growth, including the Auth0 acquisition, an increase of $42.8 million due to acquisition and integration-related costs incurred in the nine months ended October 31, 2021, but not in the nine months ended October 31, 2020, an increase in software license costs of $6.1 million and an increase in consulting expenses of $4.5 million.

The increase in employee compensation costs includes $33.8 million in one-time stock-based compensation expense related to accelerated vesting of equity awards for certain Auth0 employees at transaction close and $24.2 million in stock-based compensation expense related to the revesting agreements from our Auth0 acquisition in the nine months ended October 31, 2021.

Interest and Other, Net

Nine Months Ended

2021 2020 $ Change % Change

(dollars in thousands)

Interest expense $ (68,776) $ (50,063) $ (18,713) 37 %

Interest income and other, net 7,622 10,737 (3,115) (29)

Loss on early extinguishment and conversion of debt (179) (2,263) 2,084 (92)

Loss on conversion of debt — (136) 136 (100)

Interest and other, net $ (1,164) $ (18,541) $ 17,377 (94) %

Interest expense increased $18.7 million, or 37%, for the nine months ended October 31, 2021 compared to the nine months ended October 31, 2020, due primarily to an increase of $19.8 million for the 2026 Notes that were issued in June 2020, partially offset by a decrease of $2.3 million for the 2023 Notes, due to the Second Partial Repurchase of 2023 Notes and other conversion activity.

Interest income and other, net decreased $3.1 million, or (29)%, for the nine months ended October 31, 2021 compared to the nine months ended October 31, 2020, primarily due to a decrease of $7.4 million in interest income resulting from lower interest rates, partially offset by changes in net realized gains and unrealized adjustments in the carrying value of our strategic investments totaling $6.3 million.

Loss on early extinguishment and conversion of debt decreased $2.1 million, or (92)%, for the nine months ended October 31, 2021 compared to the nine months ended October 31, 2020 due to the Second Partial Repurchase of 2023 Notes which occurred in the nine months ended October 31, 2020 but not in the nine months ended October 31, 2021.

The expense related to Interest and other, net decreased $17.2 million, or 94%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021 primarily due to the adoption of ASU 2020-06.

Key Business Metrics

We review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

As of October 31,

As of April 30,

(dollars in thousands)

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

(in thousands)

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Total Customers and Number of Customers with Annual Contract Value Above $100,000

As of October 31, 2021, we had over 14,000 customers on our platform.

As of April 30, 2022, we had over 15,800 customers on our platform.

We believe that our ability to increase the number of customers on our platform is an indicator of our market penetration, the growth of our business, and our potential future business opportunities.

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Over time, larger customers have constituted a greater share of our total revenue, which has contributed to an increase in average revenue per customer.

The number of customers who have greater than $100,000 in annual contract value (“ACV”) with us was 2,825 and 1,780 as of October 31, 2021 and 2020, respectively.

We expect this trend to continue as larger enterprises recognize the value of our platform and replace their legacy identity access management (“IAM”) infrastructure.

The number of customers who have greater than $100,000 in annual contract value (“ACV”) with us was 3,305 and 2,075 as of April 30, 2022 and 2021, respectively.

We expect this trend to continue as larger enterprises recognize the value of our platform and replace their legacy identity access management infrastructure.

We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract with us or one of our partners to access our platform.

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Dollar-Based Net Retention Rate

Our ability to generate revenue is dependent upon our ability to maintain our relationships with our customers and to increase their utilization of our platform.

Part of our ability to generate revenue is dependent upon our ability to maintain our relationships with our customers and to increase their utilization of our platform.

We believe we can achieve these goals by focusing on delivering value and functionality that enables us to both retain our existing customers and expand the number of users and products used within an existing customer.

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We typically invoice customers in advance in annual installments for subscriptions to our platform.

Calculated billings increased 54% in the three months ended October 31, 2021 over the three months ended October 31, 2020, and increased 69% in the nine months ended October 31, 2021 over the nine months ended October 31, 2020.

We implemented operational changes to our billings process in the nine months ended October 31, 2021 pursuant to which we billed customers earlier than we would have under our historical billing practices.

These changes had a favorable effect on billings in the three and nine months ended October 31, 2021.

Absent the impact of the billings process changes, Calculated billings would have grown 53% year-over-year in the three months ended October 31, 2021 and 55% year-over-year in the nine months ended October 31, 2021, respectively.

Calculated Billings increased 7% in the three months ended April 30, 2022 over the three months ended April 30, 2021.

We implemented operational changes to our billings process in the three months ended April 30, 2021 pursuant to which we billed customers earlier than we would have under our historical billing practices.

Including the full effect of the billings process improvements for the three months ended April 30, 2021, calculated billings increased 52% year-over-year when viewed on a like-for-like basis.

As our Calculated Billings continue to grow in absolute terms, we expect our Calculated Billings growth rate to trend down over time.

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Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S.

generally accepted accounting principles, or GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance .

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance .

We use the below referenced non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes.

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

(dollars in thousands)

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Acquisition and integration-related expenses (1)

658 — 1,316 —

Non-GAAP gross profit $ 315,834 $ 196,068

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(1) Acquisition and integration-related expenses include transaction costs and other non-recurring incremental costs incurred through the one-year anniversary of transaction close.

Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin

We define Non-GAAP operating income (loss) and Non-GAAP operating margin as GAAP operating loss and GAAP operating margin, adjusted for stock-based compensation expense, non-cash charitable contributions, amortization of acquired intangibles and acquisition and integration-related expenses.

Non-GAAP Operating Loss and Non-GAAP Operating Margin

We define Non-GAAP operating loss and Non-GAAP operating margin as GAAP operating loss and GAAP operating margin, adjusted for stock-based compensation expense, non-cash charitable contributions, amortization of acquired intangibles and acquisition and integration-related expenses.

Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

(dollars in thousands)

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Acquisition and integration-related expenses (1)

10,060 — 46,664 —

Non-GAAP operating income (loss) $ (9,521) $ 5,514 $ (49,958) $ (347)

Non-GAAP operating loss $ (41,025) $ (15,898)

Operating margin (58) % (36) %

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(1) Acquisition and integration-related expenses include transaction costs and other non-recurring incremental costs incurred through the one-year anniversary of transaction close.

Non-GAAP Net Income (Loss), Non-GAAP Net Margin and Non-GAAP Net Income (Loss) Per Share, Basic and Diluted

We define Non-GAAP net income (loss) and Non-GAAP net margin as GAAP net loss and GAAP net margin, adjusted for stock-based compensation expense, non-cash charitable contributions, amortization of acquired intangibles, acquisition and integration-related expenses, amortization of debt discount and debt issuance costs and loss on early extinguishment and conversion of debt.

We define Non-GAAP net income (loss) per share, basic, as Non-GAAP net income (loss) divided by GAAP weighted-average shares used to compute net loss per share, basic and diluted.

We define Non-GAAP net income (loss) per share, diluted, as Non-GAAP net income (loss) divided by GAAP weighted-average shares used to compute net loss per share, basic and diluted adjusted for the potentially dilutive effect of (i) employee equity incentive plans, excluding the impact of unrecognized stock-based compensation expense, and (ii) convertible senior notes outstanding and related warrants.

In addition, Non-GAAP net income (loss) per share, diluted, includes the anti-dilutive impact of our note hedge and capped call agreements on convertible senior notes outstanding.

Accordingly, we did not record any adjustments to Non-GAAP net income (loss) for the potential impact of the convertible senior notes outstanding under the if-converted method.

Non-GAAP Net Loss, Non-GAAP Net Margin and Non-GAAP Net Loss Per Share, Basic and Diluted

We define Non-GAAP net loss and Non-GAAP net margin as GAAP net loss and GAAP net margin, adjusted for stock-based compensation expense, non-cash charitable contributions, amortization of acquired intangibles, acquisition and integration-related expenses, amortization of debt discount, amortization of debt issuance costs and loss on early extinguishment and conversion of debt.

Adjustments reflect the adoption of ASU 2020-06 under the modified retrospective method as of February 1, 2022, as applicable.

We define Non-GAAP net loss per share, basic, as Non-GAAP net loss divided by GAAP weighted-average shares used to compute net loss per share, basic and diluted.

We define Non-GAAP net loss per share, diluted, as Non-GAAP net loss divided by GAAP weighted-average shares used to compute net loss per share, basic and diluted adjusted for the potentially dilutive effect of (i) employee equity incentive plans, excluding the impact of unrecognized stock-based compensation expense, and (ii) convertible senior notes outstanding and related warrants.

In addition, Non-GAAP net loss per share, diluted, includes the anti-dilutive impact of our note hedge and capped call agreements on convertible senior notes outstanding, as applicable.

Accordingly, we did not record any adjustments to Non-GAAP net loss for the potential impact of the convertible senior notes outstanding under the if-converted method.

Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

(dollars in thousands)

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Acquisition and integration-related expenses (1)

10,060 — 46,664 —

Amortization of debt discount and debt issuance costs (2)

Loss on early extinguishment and conversion of debt — 89 179 2,263

Non-GAAP net income (loss) $ (10,578) $ 5,746 $ (39,849) $ 8,214

Loss on conversion of debt (2)

Non-GAAP net loss $ (42,600) $ (12,982)

Net margin (58) % (44) %

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Non-GAAP weighted-average effect of potentially dilutive securities — —

Non-GAAP weighted-average shares used to compute non-GAAP net income (loss) per share, diluted 153,756 143,392 145,782 141,936

Non-GAAP weighted-average shares used to compute non-GAAP net loss per share, diluted 155,875 131,777

Net loss per share, basic and diluted $ (1.56) $ (0.83)

Non-GAAP net income (loss) per share, basic $ (0.07) $ 0.04 $ (0.27) $ 0.07

Non-GAAP net income (loss) per share, diluted $ (0.07) $ 0.04 $ (0.27) $ 0.06

Non-GAAP net loss per share, basic and diluted $ (0.27) $ (0.10)

(1) Acquisition and integration-related expenses include transaction costs and other non-recurring incremental costs incurred through the one-year anniversary of transaction close.

(2) Reflects the adoption of ASU 2020-06 under the modified retrospective method effective February 1, 2022.

Free Cash Flow and Free Cash Flow Margin

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

(dollars in thousands)

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

(in thousands)

2 unchanged sentences

Unbilled receivables (beginning of period) 3,228 2,604

Acquired unbilled receivables — — 2,327 —

Deferred revenue (beginning of period) (996,222) (513,598)

Unbilled receivables (end of period) (4,039) (894)

Acquired deferred revenue (900) — (66,239) —

Calculated Billings $ 389,174 $ 364,030

Liquidity and Capital Resources

As of October 31, 2021, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $2,482.1 million, which were held for working capital and general corporate purposes, including potential future acquisition activity.

As of April 30, 2022, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $2,487.1 million, which were held for working capital and general corporate purposes, including potential future acquisition activity.

Our cash equivalents and investments consisted primarily of U.S.

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We expect to continue to incur operating losses and cash flows from operations that may fluctuate between positive and negative amounts for the foreseeable future.

In February 2018, we completed our private offering of the 2023 Notes due on February 15, 2023 and received aggregate proceeds of $345.0 million, before deducting costs of issuance of $10.0 million.

In February 2018, we completed our private offering of the 2023 Notes due on February 15, 2023 and received aggregate gross proceeds of $345.0 million, of which approximately $339.8 million principal amount has been repurchased or converted as of April 30, 2022.

The interest rate on the 2023 Notes is fixed at 0.25% per annum and is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2018.

In connection with the issuance of the 2023 Notes, we entered into the Note Hedges with respect to our Class A common stock.

We used an aggregate amount of $80.0 million of the net proceeds from the sale of the 2023 Notes to purchase the Note Hedges.

The cost of the Note Hedges was partially offset by proceeds of $52.4 million from the sale of Warrants in connection with the issuance of the 2023 Notes.

In September 2019, we completed our private offering of the 2025 Notes due on September 1, 2025 and received aggregate proceeds of $1,060.0 million, before deducting issuance costs of approximately $19.3 million.

In connection with the 2023 Notes, we used a portion of the proceeds to purchase the Note Hedges.

The cost of the Note Hedges was partially offset by proceeds from the sale of Warrants in connection with the issuance of the 2023 Notes.

In September 2019, we completed our private offering of the 2025 Notes due on September 1, 2025 and received aggregate gross proceeds of $1,060.0 million.

The interest rate on the 2025 Notes is fixed at 0.125% per annum and is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020.

In connection with the 2025 Notes, we entered into the 2025 Capped Calls.

We used an aggregate amount of $74.1 million of the net proceeds from the sale of the 2025 Notes to purchase the 2025 Capped Calls.

Concurrent with the private offering of the 2025 Notes, we repurchased $224.4 million principal amount of the 2023 Notes in privately-negotiated transactions for aggregate consideration of $604.8 million, including approximately $224.4 million in cash and approximately 3.0 million shares of Class A common stock.

We also terminated a portion of our existing Note Hedges and Warrants in amounts corresponding to the principal amount of the First Partial Repurchase of 2023 Notes for net proceeds of $47.2 million.

In June 2020, we completed our private offering of the 2026 Notes due on June 15, 2026 and received aggregate proceeds of $1,150.0 million, before deducting issuance costs of approximately $15.2 million.

In connection with the 2025 Notes, we used a portion of the proceeds to purchase the 2025 Capped Calls.

Concurrent with the private offering of the 2025 Notes, we repurchased a portion of the 2023 Notes and terminated a portion of our existing Note Hedges and Warrants.

In June 2020, we completed our private offering of the 2026 Notes due on June 15, 2026 and received aggregate gross proceeds of $1,150.0 million.

The interest rate on the 2026 Notes is fixed at 0.375% per year and is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020.

In connection with the 2026 Notes, we entered into the 2026 Capped Calls.

We used an aggregate amount of $134.0 million of the net proceeds from the sale of the 2026 Notes to purchase the 2026 Capped Calls.

Concurrent with the private offering of the 2026 Notes, we repurchased $69.9 million principal amount of the 2023 Notes in privately-negotiated transactions for aggregate consideration of $260.5 million, including approximately 1.4 million shares of Class A common stock and $0.2 million in cash.

We also terminated a portion of our existing Note Hedges and Warrants in amounts corresponding to the principal amount of the Second Partial Repurchase of 2023 Notes for net proceeds of $19.6 million.

Through October 31, 2021, we converted and settled approximately $33.4 million principal amount of 2023 Notes (not in connection with the 2023 Notes Partial Repurchases) and exercised and net-share-settled Note Hedges corresponding to approximately $33.4 million principal amount of 2023 Notes.

In connection with these transactions, we issued approximately 0.7 million shares of Class A common stock and received approximately 0.5 million shares of Class A common stock, accompanied by immaterial cash payments.

No requests to convert material amounts of 2023 Notes are currently outstanding.

In connection with the 2026 Notes, we used a portion of the proceeds to purchase the 2026 Capped Calls.

Concurrent with the private offering of the 2026 Notes, we repurchased a portion of the 2023 Notes and terminated a portion of our existing Note Hedges and Warrants.

On May 3, 2021, we completed the acquisition of Auth0.

In connection with this acquisition, consideration included cash of $257.0 million and approximately 19.2 million shares of our common stock with an estimated fair value of $5,175.6 million.

In connection with this acquisition, consideration included cash of $149.6 million, net of cash acquired of $107.4 million, and approximately 19.2 million shares of our common stock with an estimated fair value of $5,175.6 million.

In addition, we assumed outstanding employee equity awards with vested fair value of $238.4 million.

We further entered into revesting agreements with Auth0’s founders pursuant to which approximately 1.2 million additional restricted shares of Okta’s Class A common stock with a fair value of $332.1 million as of the closing date are issued and outstanding and will vest over three years.

Our condensed consolidated results of operations include the results of operations for Auth0 for the period from May 3, 2021 through October 31, 2021.

On August 2, 2021, we completed the acquisition of atSpoke, providing total cash consideration of $79.3 million of which $13.4 million of consideration was held back as partial security for any adjustments and indemnification obligations and will be paid within 18 months of the closing date.

While the potential impacts of the COVID-19 pandemic may create near-term headwinds for cash flow caused by factors such as delays in customer payments and delays in deals closing, we believe our existing cash and cash equivalents, our investments and cash provided by sales of our products and services will be sufficient to meet our short-term and long-term projected working capital and capital expenditure needs for the foreseeable future.

Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the expansion of our international operations, the introduction of new and enhanced product offerings, the continuing market adoption of our platform, and the integration of acquired businesses.

On August 2, 2021, we completed the acquisition of atSpoke, providing total cash consideration, net of cash acquired of $79.0 million.

Of this amount, $13.4 million of consideration was held back as partial security for any adjustments and indemnification obligations and will be paid within 18 months of the closing date.

We believe our existing cash and cash equivalents, our investments and cash provided by sales of our products and services will be sufficient to meet our short-term and long-term projected working capital and capital expenditure needs for the foreseeable future.

We continue to assess our capital structure and evaluate the merits of deploying available cash.

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Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is recognized as revenue in accordance with our revenue recognition policy.

As of October 31, 2021, we had deferred revenue of $777.9 million, of which $759.9 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

As of April 30, 2022, we had deferred revenue of $971.3 million, of which $952.2 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

The following table summarizes our cash flows for the periods indicated:

Nine Months Ended

Three Months Ended

(in thousands)

Net cash provided by operating activities $ 18,831 $ 56,075

Net cash used in investing activities (210,102) (1,267,882)

Net cash provided by (used in) investing activities (88,342) 151,905

Net cash provided by financing activities 5,382 16,179

Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash (4,041) 647

Net decrease in cash, cash equivalents and restricted cash $ (61,562) $ (108,251)

Net increase (decrease) in cash, cash equivalents and restricted cash $ (68,170) $ 224,806

Operating Activities

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Our primary uses of cash from operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs.

In recent periods, we have supplemented working capital requirements through net proceeds from the issuance of the 2023, 2025 and 2026 Notes in February 2018, September 2019 and June 2020, respectively, and from our initial public offering (“IPO”) in April 2017.

During the nine months ended October 31, 2021, cash provided by operating activities was $90.6 million primarily due to our net loss of $607.2 million, adjusted for non-cash charges of $575.1 million and net cash inflows of $122.8 million provided by changes in our operating assets and liabilities.

Non-cash charges primarily consisted of stock-based compensation, depreciation, amortization and accretion of property and equipment, intangible assets and short-term investments, amortization of debt discount and issuance costs and amortization of deferred commissions.

The primary drivers of the changes in operating assets and liabilities related to a $198.0 million increase in deferred revenue, a $42.0 million increase in accrued compensation and accrued other expenses, and a $16.6 million decrease in operating lease right-of-use assets, partially offset by a $92.2 million increase in deferred commissions, a $29.6 million increase in accounts receivable and a $17.3 million decrease in operating lease liabilities.

During the nine months ended October 31, 2020, cash provided by operating activities was $93.1 million primarily due to our net loss of $190.5 million, adjusted for non-cash charges of $248.2 million and net cash inflows of $35.4 million provided by changes in our operating assets and liabilities.

Non-cash charges primarily consisted of stock-based compensation, amortization of debt discount and issuance costs, amortization of deferred commissions and depreciation, amortization and accretion of property and equipment, intangible assets and short-term investments.

The primary drivers of the changes in operating assets and liabilities related to a $60.7 million increase in deferred revenue, a $41.7 million increase in accounts payable, accrued compensation and accrued other expenses and a $14.0 million decrease in operating lease right-of-use assets, partially offset by a $51.8 million increase in deferred commissions, an $11.8 million decrease in operating lease liabilities, a $10.5 million increase in accounts receivable, and a $6.8 million increase in prepaid expenses and other assets.

In recent periods, we have supplemented working capital requirements through net proceeds from the issuance of the 2023 Notes, 2025 Notes and 2026 Notes in February 2018, September 2019 and June 2020, respectively.

During the three months ended April 30, 2022, cash provided by operating activities was $18.8 million primarily due to our net loss of $242.7 million, adjusted for non-cash charges of $219.2 million and net cash inflows of $42.4 million provided by changes in our operating assets and liabilities.

The primary drivers of the changes in operating assets and liabilities related to a $139.2 million decrease in accounts receivable and a $15.2 million increase in accounts payable partially offset by a $60.3 million decrease in accrued compensation, a $25.0 million decrease in deferred revenue, a $21.9 million increase in deferred commissions and a $13.0 million increase in prepaid expenses and other current assets.

During the three months ended April 30, 2021, cash provided by operating activities was $56.1 million primarily due to our net loss of $109.2 million, adjusted for non-cash charges of $107.9 million and net cash inflows of $57.4 million provided by changes in our operating assets and liabilities.

Non-cash charges primarily consisted of stock-based compensation, amortization of debt discount and issuance costs, depreciation, amortization and accretion of property and equipment, intangible assets and short-term investments and amortization of deferred commissions.

The primary drivers of the changes in operating assets and liabilities related to a $111.3 million increase in deferred revenue and a $5.1 million decrease in operating lease right-of-use assets, partially offset by a $22.7 million increase in accounts receivable, a $14.9 million increase in deferred commissions and a $11.2 million decrease in accounts payable, accrued compensation and accrued other expenses.

Investing Activities

Net cash used in investing activities during the nine months ended October 31, 2021 of $210.1 million was primarily attributable to purchases of investments of $1,333.6 million and payments of $215.1 million, net of cash acquired, in connection with our Auth0 and atSpoke acquisitions, partially offset by proceeds from the sales and maturities of investments of $1,346.8 million.

Net cash used in investing activities during the nine months ended October 31, 2020 of $1,267.9 million was primarily attributable to purchases of investments of $1,846.0 million partially offset by proceeds from the sales and maturities of investments of $592.9 million, purchases of property and equipment of $11.3 million to support additional office space and headcount and the capitalization of internal-use software costs of $3.5 million associated with the development of additional features and functionality of our platform.

Net cash used in investing activities during the three months ended April 30, 2022 of $88.3 million was primarily attributable to purchases of investments of $306.8 million partially offset by proceeds from the sales and maturities of investments of $231.3 million.

Net cash provided by investing activities during the three months ended April 30, 2021 of $151.9 million was primarily attributable to proceeds from the sales and maturities of investments of $344.8 million, partially offset by purchases of investments of $189.5 million.

Financing Activities

Cash provided by financing activities during the nine months ended October 31, 2021 of $58.4 million was primarily attributable to proceeds from the exercise of stock options of $41.1 million, and proceeds from employee purchases under our ESPP of $17.4 million.

Cash provided by financing activities during the nine months ended October 31, 2020 of $1,066.5 million was primarily attributable to the issuance of 2026 Notes for proceeds of $1,134.8 million, net of issuance costs and proceeds from the termination of existing Note Hedges of $195.0 million, offset by payments for the termination of existing Warrants of $175.4 million and the purchase of 2026 Capped Calls of $134.0 million.

Other items impacting cash provided by financing activities include proceeds from the exercise of stock options of $33.6 million and proceeds from employee purchases under our ESPP of $12.8 million.

Cash provided by financing activities during the three months ended April 30, 2022 and 2021 of $5.4 million and $16.2 million, respectively, was primarily attributable to proceeds from the exercise of stock options.

Indemnification Agreements

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Off-Balance Sheet Arrangements

As of October 31, 2021, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of April 30, 2022, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in accordance with GAAP.

In the preparation of these condensed consolidated financial statements, we are required to make estimates and assumptions that affect

the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures.

In the preparation of these condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures.

To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected.

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Summary of Significant Accounting Policies” in our Form 10-K.

There have been no significant changes to these policies for the nine months ended October 31, 2021, except as described in Note 2 to our condensed consolidated financial statements “Accounting Standards and Significant Accounting Policies”.

We no longer consider estimates related to our convertible senior notes to be a critical accounting policy due to the adoption of ASU 2020-06 effective February 1, 2022, which simplified the accounting for convertible instruments.

There have been no other significant changes to these policies for the three months ended April 30, 2022.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis